CASE 2: REDUCING SUPPLY CHAIN COMPLEXITY

mayo 4, 2010

DELPHI is an automotive parts company headquartered in Troy, Michigan, USA. Delphi is one of the world’s largest automotive parts manufacturers and has approximately 146,600 employees (18,900 in the United States).

With offices worldwide, the company operates 150 wholly owned manufacturing sites, 44 joint ventures, 53 customer centers and sales offices, and 33 technical centers in 38 countries.

Delphi is structured into the following groups:

  • Consumer Products
  • Manufacturer Products
  • Aftermarket & Dealer Products

The company is focusing the organization on the following core strategic product lines:

  • Controls & Security (Body Security, Mechatronics, and Displays)
  • Electrical/Electronic Architecture (Electrical/Electronic Distribution Systems, Connection Systems, and Electrical Centers)
  • Entertainment & Communications (Audio, Navigation, and Telematics)
  • Powertrain (Diesel and Gasoline Engine Management Systems)
  • Safety (Occupant Protection and Safety Electronics)
  • Thermal (Climate Control & Powertrain Cooling)
Long accustomed to mapping the value streams within factories for the products they make, executives at Delphi Automotive Systems decided to extend their efforts beyond the factory walls. They sought to identify every step involved in getting a product to a customer, including not just manufacturing processes but every action in the supply chain as well.
Delphi is a global company with about 200 manuifacturing sites and roughly 200000 employees, so it’s not surprising that getting a product to a customer us a complex process too complex, executives found.
‘It takes 171 organizations and a total of 288 handsoff just to bring the product to the customer’, said Mark Lorenz, vice president of operations logistics.
Lorenz, speaking at a conference sponsored by the Management Rountablbe In Dallas, was describing the steps connected with justo one product, which he did not identify. But he did say that Delphi applied lean principles to sumplify and streamline all complexity.
In the case of a particular product, the numer of organizations involved (both inside and outside Delphi) has been reduced to 73, and now tere are only 82 handsoff. ‘We’re still thinking that’s too may’, Lorenz said.
In addition, the production process has been streamlined so that only one plant is involved instead of two, which has the added benefit of freeing up capacity in the plant no longer involved.
The achievemet with that product’s delivery is part of much larger picture at Delphi, where the implementation of lean manufacturing has been expanded to include streamlining the supply chain.
The approaches taken include working on rates, forming partnerships with supply chain companies, route modeling, and reducing the number of locations involved as well as the number of shippers. In addition, ‘we’ve eliminated probably 40% to 50% of our warehouses, and there are more to take out’, Lorenz explained.
The result so far, he said, is that Delphi’s total logistics costs, including transportation, customs and duties, freight expenses, and warehousing, have been cu to about 2.5% of revenues, down form a range of five to six percent. ‘We feel that’s a bechamark’, Lorenz declared.
A major challenge

Delphi began its lean journey in 1996 and is recognized today as a leader in implementing lean processes. Five of its plants were 2002 winners of the Shingo Prixe for Excellence in Manufacturing.
Addressing supply chain issues is a big job for Delphi, given the scope of its operations. The company produces more than 130 product lines; Lorenz jokingly referred to Delphi as ‘the Wall-MArt of automotive companies’, with products for dynamics and propulsions, electronics and mobile communication, and safety, thermal and electrical architecture. Each day, Delphi ships 8 million parts with 150000 part numbers to more than 100 customers. In a lighthrearted, Lorenz stated that Burger King sells approximately seven million hamburguers a day with about six part numbers.
He also offered s supply chain comparison. Three major airports, Chicago, Los Angeles and Dallas, are responsible for 2846 flights, or ship windows, per day, Lorenz said, while Delphi handles 3000 shipments per day, which are 99% on time. A diagram of Delphi’s logistics literally covers the globe.
To make its manufacturing lean, Delphi created the Delphi Manufacturing System, modeled after the renowned Toyota Production System. For its supply chain, Delphi has established its Global Logistics Network and has been striving  to streamline every aspect of that work.’ We are compressing th size of the supply chain by using value stream mapping’, Lorenz declares.
Product flow to customers has been realigned so that shipments rarely, rather than regularly, travel form one continent to another.
Delphi used to work with 35 freight forwardes and 56 carriers. Now it has three global LMCs and 12 ocean carriers; Lorenz says the company would like to reduce that latter figure to nine.
It’s Information That Counts

However, the real challenge in transforming the supply cahin was information flow. ‘ If you don’t have good information flow, material flow is just expending’, Lorenz commented.
Toward that end, Delphi and technology partner Covisint created a supplier portal, a Web page that ‘helped us to eliminate the complexity we had with multi-division communication” between Delphi an it more 5000 global suppliers, he said.
‘The supplier portal aso supports our vision fro electronically linking pur supply chain. Through this portal, we expect to improve customer service and improve our ability to achieve cost reductions’, he added. The portal is designed to help streamline procurement, production and shipping.
For example, Lorenz notes thar even third-tier suppliers can get information through the portal, which gives them a mucha earlier indication of likely orders. ‘The old way, the third-tier supplier may not have seen that for four weeks out’, Lorenz states.
In addition, Delphi is using a Covisint tool called Inventory Visibility that monitors min/max information.
‘We are using information through the portal to forecast where demand is going the next four or five weeks. We are able to smooth out ripples in our manufacturing’, Lorenz said.
Delphi also offers electronic messaging for suppliers for 2-way communication in addressing supply chain issues, Delphi has not abandoned it focus on eliminating waste from its manufacturing operations. Continous flow, small lot production strategy, elimination of waste, improvements in quality and the other principles of lean manufacturing are still emboided in the Delphi Manufacturing System, which remains the company standard.
For the future, Delphi reamins absolutely committed to continuing its lean journey, Lorenz stressed, even at a time when worlf problems can threaten supply chain disruptions.
‘We have no plans to change our lean philosophy or practices’, he said. ‘Carrying excess inventory is an unnecessary expense’.
TAKESAWAY
  • Mapping the supply chain is essential.
  • Supply chains can be improved by reducing the numbers of organizations involved, handsoffs and warehouses.
  • Smooth information flow is critical.
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